CLP tells Hong Kong to boost gas-fired power, instead of China imports

HONG KONG, June 5 Thu Jun 5, 2014 7:10am EDT

HONG KONG, June 5 (Reuters) - Hong Kong-based utility CLP Holdings is calling on the local government to boost the use of natural gas for electricity generation rather than opt for a sharp increase in power imports from mainland China to cut pollution in the city.

Hong Kong has been reviewing its fuel mix that is currently heavily tilted towards coal in a bid to cut emissions and has been mulling two options - one calling for higher power imports from the mainland and the other recommending a sharp rise in the use of natural gas, a cleaner but more expensive fuel than coal.

The city, which is set to see its coal-fired power generating units go offline from 2017, launched a three-month public consultation on the proposals in mid-March.

CLP, a regional power investor that makes most of its money from electricity generation in Hong Kong under a profit-guarantee system, said the city should boost gas-fired power generating capacity to have "sufficient backup", while seeking to increase imports from the mainland over the long term.

"If we are ... reducing the amount of capacity we have in Hong Kong, that position (supply security) would be compromised," Richard Lancaster, CLP's chief executive officer, told a business forum in Hong Kong on Thursday.

CLP is backed by the wealthy Kadoorie family and has been providing electricity to Hong Kong for over 100 years.

Under a government programme known as Scheme of Control, CLP and Power Assets Holdings Ltd, the city's other power supplier, get an annual return of 9.99 percent on net fixed assets until 2018. Critics say the scheme is too generous and has led to over-investment in local power generating capacity.

With Hong Kong getting 53 percent of its power from coal, according to government data for 2012, it has been suffering from worsening air pollution - a situation exacerbated by pollution from factories in the neighbouring Chinese province of Guangdong, a major manufacturing centre.

Electricity supplied from the Daya Bay Nuclear Power Station in Guangdong accounted for 23 percent of Hong Kong's power consumption in 2012, natural gas accounted for 22 percent and the remaining came from oil and renewable energy sources.

Under the first option that calls for higher power imports from southern China, mainland power plants, including the Daya Bay station, would account for half of Hong Kong's electricity supply. Generation by natural gas would increase to 40 percent, while coal and renewables would account for about 10 percent.

The other option calls for boosting the share of natural gas in its fuel mix for power generation to about 60 percent. Coal and renewables would account for 20 percent, and the import of nuclear electricity from Daya Bay Nuclear Station would be kept at about 20 percent. (Editing by Himani Sarkar)